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SEBI suggests call auction session for stock closing prices, replacing VWAP

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The market regulator has suggested a Close Auction Session (CAS) to replace the existing Volume-Weighted Average Price (VWAP) mechanism, aiming to reduce volatility and improve execution for passive funds.
The Securities and Exchange Board of India (SEBI) has proposed a new method for determining the closing prices of stocks, suggesting the implementation of a call auction session at market close instead of using the Volume Weighted Average Price (VWAP). This proposal aims to enhance price discovery and reduce volatility at the end of trading sessions. Under the new system, a call auction would occur in the last 15 minutes of trading, where orders are collected and matched at a single price that maximizes trading volume. This change is expected to provide a more accurate reflection of the stock's value at market close, potentially benefiting investors by offering a more stable and fair closing price mechanism. SEBI's suggestion comes after observing that the current VWAP method might not always reflect the true market dynamics at the close, especially in less liquid stocks.

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